Following a stellar calendar year (CY) 2021 in which the benchmark Nifty gained more than 24 percent, the market witnessed a choppy 2022 amidst geopolitical tensions, fears of recession, and persistent rate increases. However, despite the headwinds, the Nifty has managed to close the year with gains of more than 4 percent, above the 18,100 level.
Compared to developed markets, the Indian market has done exceptionally well this year.
According to Sanjay Chawla, Head, Institutional Research, Emkay Global Financial Services Ltd, the domestic equity flows have been very robust and they have very handsomely absorbed a lot of foreign institutional investor (FII) selling, which has happened particularly in the first half of the year, although it started in the third quarter of 2021.
"Nifty traded within a broad range but by ending around the higher end does suggest that the start of the coming calendar year is likely to be on a positive note," said Rajesh Bhosale - Equity Technical and Derivative Analyst, Angel One.
Hits & Misses of Nifty indices in 2022
Metals, auto, FMCG, and banking stocks significantly contributed to the indices' record-breaking gains.
Banking space was amongst the outperformers as it gained more than 20 percent. The Nifty PSU Bank index gave astonishing returns of more than 70 percent. As per analysts' views, bias for this sector remains positive.
Due to the acceleration in credit growth, public sector banks' profit margins grew in H1FY23. The September quarter's earnings announced by PSU banks showed a considerable improvement, driving stock prices to new highs.
According to Siddharth Bhotika, fund manager at ITI Long Short Equity Fund, the entire banking space has performed exceptionally well in CY22 owing to 3 key factors - strong asset quality outcomes, expanding margins due to lagged increase in cost of funds versus yields on advances, and return of bank credit growth.
Reported bank sector credit growth is overstated by a few percentage points due to larger working capital requirements at oil marketing companies, which are likely to remain stable or degrow over the next few months.
“We expect credit growth in CY23 to be in low to mid-teens. Margins are likely to peak out for most banks, especially private in Q1CY23. The PSU bank rally is however driven more by the likelihood of low credit cost outcomes for the next couple of years, given the high provisioning done on legacy assets and the good performance of the COVID-19 restructured book. We expect PSU banks to continue to outperform their private peers, though the trajectory could be more volatile,” said Bhotika.
Nifty Metal was up more than 22 percent and was closing around the higher point for the year.
“Amid the overall optimism, one key downside still remains – surging covid-19 cases in China and the rising rate of infections in Japan, South Korea and elsewhere,” said brokerage ICICI Securities Ltd.
Metal stocks were surging as a result of the removal of the steel export levy, and the falling price of coking coal, before the news of fresh COVID-19 cases in China
“The high beta counter had volatile moves on the back of developing news in China. Going ahead the bias remains positive but traders should keep a tab on global developments as well,” said Bhosale.
Nifty Auto was also up more than 15 percent but it was a mixed bag of pictures where the gains were led by few heavyweights counters. According to analysts, traders can maintain a positive stance but need to be selective.
Nifty FMCG index also had a strong run with gains of 18 percent this year, mainly driven by ITC Ltd that finally came out of slumber phase and gave more than 60 percent gains this year.
However, rising input cost increases and a drop in sales from rural regions put pressure on the FMCG sector during the year. Leading FMCG companies reported a similar decline in operating margins for the September quarter as they had for the previous one.
On the contrary, Nifty IT was one of the most discussed counters as the global slowdown resulted in weakness and by the year end, the index was down more than 25 percent.
“As of now there are no signs of strong bullish reversal, however, considering its past outperformance it seems the prices are at lucrative levels and one can start accumulating in this basket,” added Bhosale.
According to Bhotika, the IT sector has been facing headwinds on expectations of a demand slowdown from a US recession in CY23. Valuations have corrected from recent highs but are still above historical averages.
“The sector may continue to underperform until more clarity emerges on US growth scenario, but over the medium term we are sanguine over the likely upward trajectory for companies in this space,” said Bhotika.
Another, underperformer was the Nifty Pharma index as it was down more than 11 percent. According to analysts, going ahead, they don't have any major positive view on this pace and traders can avoid this space.
“Similarly, the Realty sector had a strong CY21 followed by a subdued CY22. As we are through with bulk of rate increases, and demand so far has held up well, we expect realty stocks to perform in line with the overall market,” added Bhotika.